3/19/2008 @ 6:00PM

Silicon Valley Can't Be Beat

T.J. Rodgers says many have tried, but none have succeeded in creating other Silicon Valleys around the world. The region’s unique combination of talent, money and unconventional thinkers, he says, simply can’t be replicated.

Rodgers is an outspoken free markets advocate and founder of
Cypress Semiconductor
, a maker of chips that power consumer products such as MP3 players, cellphones and digital cameras. He has been a major force in the Valley for nearly 40 years and has lived through every tech trend.

About 20 years ago, Rodgers took a page from his venture capital friends and started an incubator for semiconductor start-ups at Cypress. All told, the San Jose, Calif.-based company has invested $600 million in nine start-ups that have a market cap of $3.6 billion today–most of which is from solar cell maker
SunPower
, which went public in 2005.

Rodgers talked with Forbes.com about the history of innovation in the Valley and innovation in silicon chips–the technology that started it all and gave the region its name.

Forbes.com: What have been the bright spots in innovation?

T.J. Rogers: Everybody’s life is changed by electronics. The invention of the microprocessor [inside electronics] changed everybody’s life.

Are chips a mature business?

The technology is getting mature, but what we put on chips is getting more robust and complicated and intriguing. We make programmable chips that go on a lot of different things. Programmable chips are where you put a [software] code in them. We’re focusing on that because the world is moving so fast. We’re seeing exponential growth. One of the important attributes of an exponential function is the bigger something gets, the faster it grows. That’s what’s happening in silicon.

That’s also a hallmark of Silicon Valley: If companies aren’t growing their knowledge exponentially, they will be eliminated in a few years.

What’s the track record of the start-ups Cypress has incubated?

SunPower is very successful–worth about $3 billion. Cypress Microsystems is also very successful.

Outright failure: Silicon Magnetic Systems. I couldn’t get the magnetic memories to work. Magnetic memories are a hybrid between a memory chip and a disk drive–it stores information permanently but it’s as fast as a chip. I put in a lot of money and got nothing for it.

Each of our start-ups has a target to go from nothing to $50 million in annual sales and make $10 million, or 20%, in pre-tax profit. When they get there, I agree to buy them out.

On a scale of 1 to 10, how innovative is Silicon Valley now compared with past decades?

Ten. Technology has changed radically. It’s really not Silicon Valley any longer. It became Personal Computer Valley, followed by Workstation Valley, then Biotech Valley, then Software Valley, then Search Engine Valley and now we’re rapidly turning into Energy Valley. Silicon Valley is really about a process, not a technology.

What’s the Valley not doing today?

There are certainly technologies I think are going to be important for the future that Silicon Valley isn’t working on. We’re not working on nuclear technology. Nuclear technology doesn’t create pollutants in the atmosphere. Waste from nuclear reactors can be stored properly. When we get farther down the line with global warming and carbon dioxide, nuclear energy will become important.

There has been no nuclear plant commissioned in the U.S. for over a decade. The government has regulated out of existence the nuclear industry. When government walks in the front door, innovation goes out the back door.

Another thing government is shutting down is genetic engineering. We should be using genetic engineering to make biofuels from plants.

We’re seeing a lot of innovation in clean energy technologies coming out of China. Is China more innovative than the Valley?

Silicon Valley is to innovation what Wall Street is to finance. That doesn’t mean good things don’t happen elsewhere. There is innovation in China, but what China does well is manufacture. Practically every manufactured item a decade from now will come from China.

Will China or any other place ever rival the Valley?

Not in my lifetime. You have to have multiple technologies interacting with each other, free market capital that’s willing to take large risks, business acumen to start a company and, most of all, a culture that supports and respects those values.

The ingredients–the DNA of Silicon Valley–are basic American freedoms and free market capitalism. The West has got a new thinking about it that’s different from the establishment in the East. Put all that together and one of those things is missing [in other places]. China doesn’t have freedoms. Boston is halfway between Silicon Valley and London. They don’t have kings or queens, but they have a much more top-down environment.

Can the Valley be replicated?

We had Silicon Prairie, Silicon Mountain. They’ve been Silicon this-ing and Silicon that-ing for 20 years but they haven’t run us over. You go to the East Coast, there’s route 128, but it’s not Silicon Valley by a bunch.

What I really love is some kid coming out of Berkeley who doesn’t even wear socks to work, but he can kick my butt and I have to watch out for him all the time.